Crypto Taxes 2024: The Complete Guide

Knowing the tax implications of cryptocurrency is essential for anyone seriously engaged in the crypto market, as these consequences significantly impact overall strategy. In the US, the IRS treats cryptocurrency as either income or capital gains, depending on the taxable event that generated the earnings.

Your crypto tax rate will depend on various factors, which we will explore in this article. Generally speaking, the IRS applies the same tax treatment to all types of cryptocurrency, including Bitcoin, Ethereum, and altcoins.

International taxpayers can refer to our helpful country guides for specifics in other regions.

What affects your crypto taxes?

For US taxpayers, the key factor affecting tax on crypto gains is whether a profit was realized in the short or long term.

Long-term tax rates on profits from tokens held for a year or longer peak at 20%, whereas short-term capital gains are taxed at the same rate as income: 10-37%.

You can use our free crypto profit calculator to make plans and imagine future gains.

Your exact cryptocurrency tax rate depends on the length of time the asset was held and your overall income but ranges between 0-37% based on short- and long-term capital gains tax rates.

Mining, staking, lending, or payments for goods or services are considered ordinary income for the purpose of your crypto tax bracket. You’ll pay a crypto tax rate corresponding to your gross income, ranging from 10-37%.

How to benefit from free crypto taxes

Although complete avoidance of cryptocurrency tax during crypto trading is not feasible for the majority of taxpayers, there are straightforward and lawful approaches that the typical crypto user can employ to reduce crypto taxes. 

To mitigate their liability concerning crypto taxes, taxpayers can engage in tax loss harvesting, utilize specialized cryptocurrency tax software such as TokenTax, contribute crypto through donations, prioritize long-term capital gains, and execute sales in years of reduced income.

Taxpayers may also be interested in crypto tax free countries as a viable long-term strategy for serious investors.

All earnings from crypto mining, staking, or payments are taxed at your ordinary income rate (like other forms of property), which varies depending on which of the income brackets you fall into. 

The crypto capital gains tax rate, however, varies based on the length of time you held a given asset. The US encourages long-term trades by taxing them at the lower, long-term capital gains rate. If you hold for over a year, your crypto tax rate will typically be much lower.

Short-term crypto tax rate
If you hold a digital asset for a year or less, your proceeds will be considered short-term capital gains. They will be taxed at your ordinary income rate, which is determined by your overall income.

Long-term crypto tax rate
If you hold cryptocurrency for more than a year, your proceeds will be taxed at the advantageous long-term capital gains rate. Your rate also depends on your overall income, but long-term capital gains are generally lower than the short-term capital gains rates.

According to the IRS’ cryptocurrency tax FAQs, the holding period begins on the day after you receive an asset. The asset's cost basis is its purchase price plus any applicable fees.

Your cryptocurrency tax rate depends on whether you held assets for short- or long-term capital gains. Here’s a breakdown by income level so you can find your crypto tax bracket and crypto tax rate for the 2023 tax year (for US taxpayers).

2023 Federal income tax brackets (taxes due in 2024)

2023 Long-term capital gains tax rates (taxes due in 2024)

- IRS

Here is an overview of a range of crypto transactions and their tax implications, focusing on crypto taxes in the United States per the current IRS rules. International crypto taxpayers may benefit from our helpful guides to international crypto taxes.

Crypto taxes for crypto capital losses

Crypto losses can offset taxes on profits gained from selling any type of capital asset and up to $3,000 of income if your tax filing status is single or married filing jointly ($1,500 for married filing separately). These losses can also be carried forward into subsequent years. By including crypto capital losses in their tax reports, individuals can decrease their taxable income, thus potentially reducing their total tax obligation.

Crypto taxes on lost or stolen crypto

Regrettably, in cases where you no longer possess lost or stolen crypto, no distinct procedure exists for asserting theft-related losses. In 2018, the IRS provided clarification that only losses that stem from federally declared disasters are eligible for deduction through Form 4684 (Casualties and Thefts).

Crypto taxes on bankruptcies

If you hold crypto that becomes worthless due to a third party’s bankruptcy after the resolution and conclusion of a cryptocurrency company's bankruptcy proceedings, you can balance the loss from the cryptocurrency by utilizing its original purchase cost against your profits.

You may offset any surplus loss against regular sources of income, such as wages, for up to $3,000 if your tax filing status is single or married filing jointly ($1,500 for married filing separately). If the loss surpasses the limit, the remaining amount can be carried forward to the subsequent tax year.

Crypto taxes on your income

Crypto for US taxpayers is subject to crypto taxes under either standard income tax or capital gains regulations. The following activities have the potential to generate income taxed at the going income tax rates of 10-37%.

• Cryptocurrency mining

• Accumulating rewards from staking cryptocurrency

• Receiving cryptocurrency as compensation for goods or services

Crypto taxes for crypto sales and trading

The IRS considers the following scenarios taxable events:

• Exchanging one cryptocurrency for another (e.g., BTC for SOL)

• Utilizing crypto for purchases of goods or services (e.g., BTC for a Tesla)

• Trading cryptocurrency for traditional fiat currency (e.g., BTC for USD)

• Any other form of relinquishing or disposal of cryptocurrency

Short- and long-term capital gains rates apply to the above transactions. Short-term capital gains are taxed at the going income tax rates, while long-term gains are taxed at a lower rate ranging from 0-20%.

Crypto taxes when buying crypto with stablecoins

While stablecoin value variations generally tend to be minor and have a limited impact on the total tax obligation, it’s essential to disclose crypto stablecoin transactions in your tax reporting. Trading in and out of stablecoins for crypto has the same tax implications as if you were trading in and out of fiat currency.

Crypto taxes for moving crypto between wallets

Moving crypto between wallets does not trigger a taxable event, provided you solely move the tokens and refrain from exchanging them for another cryptocurrency or converting them to traditional fiat currency during the asset transfer.

Crypto taxes for adding/removing liquidity from DeFi protocols

When you participate in a DeFi liquidity pool, this can lead to tax implications. In certain scenarios, trading your cryptocurrency for a liquidity pool token, representing your pool share, might trigger a taxable event, following standard capital gains rules. Conversely, if you lock your coins in the pool and later claim rewards tokens, taxation occurs upon claiming those rewards. 

Upon exiting a liquidity pool and realizing gains or losses, another potential taxable event arises. The lack of specific IRS guidelines on liquidity mining has led to uncertainty. Given the IRS treatment of coins from airdrops and forks as income, there is speculation that they might adopt a similar stance on liquidity mining rewards, classifying them as income rather than capital gains.

Airdrops and hard forks

Clear guidance from the IRS confirms that airdrops and hard forks are taxable. The income you report matches the fair market value (FMV) of the cryptocurrency at the time of receipt. The transaction's ledger or blockchain timestamp determines the receipt date.

Crypto gifts and donations

Receiving crypto as a gift does not initially incur crypto gift taxes. Taxes come into play upon selling, resulting in capital gains or losses. Selling at a gain means your cost basis matches the donor's. Selling at a loss means your basis is the lesser of the donor's or fair market value at receipt. The unknown giver's basis results in a $0 basis for the sale. The holding period includes the giver's time if known. Otherwise, it begins at receipt. 

Gifting crypto incurs no tax, but recipients need the giver's asset basis. Donating crypto to a 501(c)(3) yields a tax-free charitable deduction. For over a year's holding, the deduction is fair market value. Under a year is the lower cost basis or market value.

Crypto mining tax

Taxes related to crypto mining differ based on location. In the US, crypto miners should expect to pay taxes on mining rewards as income and on capital gains when selling mined coins. Distinctions exist in crypto mining tax for hobbyists versus professional miners operating as a business. Business miners might qualify for specific tax deductions.

Crypto staking taxes

Both income and capital gains are involved in crypto staking taxes. Proper reporting involves declaring the fair market value of staking rewards upon receiving them and accurately calculating capital gains or losses upon eventual disposal.

Crypto taxes on DeFi

Earnings from DeFi crypto staking can be subject to either capital gains or income taxation, as they can arrive in two ways: through extra tokens or an increase in the value of existing tokens. Certain DeFi platforms provide interest or rewards by directly adding more coins to a lender's wallet.

Crypto tax on DAOs

When a US taxpayer obtains crypto from a DAO in exchange for goods or services, they are required to report it as income. Any profits earned from the subsequent sale of these acquired assets are then subject to capital gains tax. Additionally, if distributions involve governance tokens or NFTs, they are also treated as taxable income. Subsequent profits from selling these distributed assets are likewise subject to capital gains tax.

Crypto taxes on NFTs

NFTs are taxable upon sale, with no legal loopholes to avoid NFT taxes for US taxpayers. The IRS treats NFTs as property, and some will be considered collectibles, leading to potential higher tax rates. 

Regardless of classification, gains and losses from NFT sales must be reported on tax returns, with rates based on the holding period and overall income. The IRS' new approach to taxing NFTs as collectibles was declared in March 2023, subjecting certain NFT gains to a 28% rate, distinct from standard capital gains rates.

Most US taxpayers must submit their 2023 tax returns or file for an extension by April 15, 2024. For those seeking a crypto tax extension, the filing deadline is extended to October 15, 2024.

The IRS requires taxpayers to report crypto transactions. Any trading, selling, swapping, or disposal of crypto constitutes taxable capital gains or losses. Moreover, crypto mining, staking, and yield farming earnings are taxable as income.

Step 1: Calculate Gains and Losses
For any crypto action like selling or trading, you trigger taxable events. Find the difference between asset value at disposal and its cost basis to compute gains/losses. Count transaction fees in your cost basis.

Step 2: Complete IRS Form 8949
Use Form 8949 to declare crypto gains/losses. This form is for every crypto sale within the year. Organize info like asset details, acquisition date, sale date, proceeds, cost basis, and adjustments.

Step 3: Attach Form 8949 to Schedule D
Attach Form 8949 to Form 1040 Schedule D, summarizing capital gains/losses. Separate short- and long-term gains/losses. If you have capital losses from previous years or plan to carry them, report on Schedule D.

Step 4: Report Crypto Income and Complete Return
Crypto income (mining, staking, etc.) is ordinary income. On Form 1040 Schedule 1, disclose it under "Additional Income and Adjustments to Income." Finish your return by filing the necessary forms and settling your taxes.

The Infrastructure Investment and Jobs Act, a bipartisan legislation signed into law by President Biden and made effective January 1, 2024, requires brokers in the crypto space to report transactions exceeding $10,000 to the IRS. This move, aimed at closing the tax gap, has stirred controversy and raised practical challenges. Critics argue that the reporting requirements are too burdensome and could be difficult to implement effectively.

The legislation focuses on individuals who receive cryptocurrency receipts exceeding $10,000 in the course of a trade or business, with "trade or business" broadly defined. This definition, subject to interpretation, considers factors like the regularity and continuity of the activity, intent to make a profit, and level of activity. While typical retail traders are usually not considered "trade or business," frequent traders, validator node operators, and other crypto professionals could face potential issues.

The law mandates brokers to submit detailed reports to the IRS within 15 days of qualifying transactions, including personal information such as the sender's name, address, and Social Security number. However, the lack of clear guidance from the IRS has left many users uncertain about how to comply with the new requirements. Questions have been raised about how to report transactions involving miners, validators, or decentralized exchanges, as well as transactions made anonymously.

In response to these challenges, advocacy organization Coin Center has proposed a de minimis exemption for small crypto transactions and urged the IRS to provide clearer guidelines. The implementation of these new reporting requirements is expected to significantly impact crypto tax reporting in the US starting in 2024.

Effective January 16, 2024, the IRS has provided clarity, stating that businesses engaged in specific digital transactions are not required to use Form 8300 until further regulations are issued. Prior to this, concerns arose in the industry due to a new tax reporting law that took effect on January 1, 2024, mandating individuals in a trade or business to report transactions over $10,000 through Form 8300.

Although the form itself is not novel, the Infrastructure Investment and Jobs Act outlined the obligation for "anyone receiving $10,000 or more in cryptocurrency in the course of their trade or business to report the transaction to the IRS."

However, applying this broad rule to crypto transactions presents challenges in gathering necessary information due to the pseudonymous nature of cryptocurrency dealings.

The IRS has not clarified the uncertainties surrounding this legislation, leading them to declare that businesses with crypto transactions exceeding $10,000 are not required to file Form 8300 until further guidance is provided. This guide will be updated promptly upon the release of additional information by the IRS.

At TokenTax, we're here to revolutionize how you approach filing your crypto taxes. We understand that crypto taxes can be a maze of complexity, but that doesn't mean they need to be a source of stress. 

We pair cutting-edge crypto tax software with a proven and trusted team of crypto tax experts. We've made even the most intricate crypto tax scenarios manageable and straightforward by bridging technology and human insight.

Our crypto tax software seamlessly integrates with your exchanges, protocols, and wallets. Backed by skilled crypto accounting and reconciliation teams, we ensure precision in reporting across crypto, DeFi, and NFT transactions. We offer comprehensive filing add-ons so you can trust that your crypto tax matters are handled with the utmost care.

Our service caters to a wide spectrum of users, from enthusiasts to advanced traders, with tailored plans designed to cater to your individual requirements. Our features include automated forms, real-time reports, and a specialized tax loss harvesting dashboard, empowering you to make informed decisions. Furthermore, our integration with TurboTax streamlines the filing process, bringing you unparalleled convenience.

Consider TokenTax your partner to conquer the challenges of crypto taxes this and every tax season. With a truly robust suite of features, unparalleled customer support, and customized plans, we're committed to simplifying crypto taxes.

The IRS tracks crypto transactions through exchanges, third-party reports, and blockchain analysis. Here’s a brief look at how the IRS tracks crypto to ensure compliance:

• Third-Party Reports: Exchanges share users' transaction data with the IRS.

• Blockchain Analysis: The IRS uses blockchain experts to trace public crypto transactions.

• John Doe Summons: The IRS might issue John Doe summons to cryptocurrency platforms, allowing them to gather information about users who meet specific criteria, such as those with a certain number or value of transactions.

• Subpoenas: Subpoenas gather user data from platforms, aiding IRS investigations. Subpoenas are legal tools for the IRS to collect relevant data. They help identify tax evaders in crypto transactions. Exchanges like Coinbase, Circle, Kraken, and Bitstamp have received subpoenas.

It’s best to assume the IRS has full transparency into your crypto activity and to plan accordingly. 

If you want to avoid higher taxes and pay a lower crypto tax rate, you should prioritize long-term crypto trades whenever possible. As indicated, crypto capital gains tax rates are more favorable when you make long-term capital gains.

The IRS allows specific identification accounting for digital currency. This inventory valuation method lets you track individual tax lots, so you’re able to strategically match up sales and acquisitions. If you want to lower your crypto tax rate, it is generally best to focus on long-term trading.

When you use TokenTax, you can choose which method of specific ID accounting you want to use: FIFO, LIFO, HIFO, or Minimization. This helps to ensure you get the most beneficial crypto tax rate possible, and our expert team is available to work with you to ensure your filing is thorough, accurate, and optimized.

Save crypto taxes: Learn how to reduce your crypto taxes

Here are some common FAQs related to your crypto taxes and crypto tax brackets, the cryptocurrency tax rate, and tax on crypto gains.

Can I reduce my income and get to a lower crypto tax bracket?

There are some simple ways to reduce your crypto tax rate. They include:

• Take advantage of qualified deductions

• Invest in a tax-deferred 401k

• Donate to an IRS-qualified charity

• Use a flexible spending account for childcare or healthcare

• Take losses on stocks or other crypto holdings

Do I have to report crypto losses on my taxes?

While it's not obligatory to report crypto losses on taxes, US taxpayers are obligated by the IRS to report all cryptocurrency transactions, even losses from sales. Neglecting to report crypto transactions properly can result in penalties and heightened IRS attention. Furthermore, failing to report crypto losses prevents their use for offsetting capital gains or income.

Can I reduce my crypto tax liability by using tax loss harvesting?

Taxloss harvesting is a legitimate strategy to reduce your crypto tax liability. You can offset gains from other investments or crypto trades by strategically selling crypto assets at a loss. This can lead to a lower tax bill. However, US taxpayers need to follow IRS rules and regulations.

What is a taxable event in crypto?

The IRS treats these scenarios as taxable events:

• Exchanging one cryptocurrency for another (e.g., BTC for SOL)

• Using crypto to purchase goods or services (e.g., BTC for a Tesla)

• Trading crypto for traditional fiat currency (e.g., BTC for USD)

• Any other form of relinquishing or disposal of cryptocurrency

• Receiving crypto as a payment for goods or services or by other means

Do you pay tax on crypto?

Cryptocurrency is subject to taxation in the US, with the specific tax treatment based on the type of taxable event. This can include ordinary income and capital gains, depending on factors such as the duration of asset holding and overall income.

How much taxes do you pay on crypto?

The tax amount on cryptocurrency varies based on factors like how long you held the asset and your total income. US tax rates range from 0-37%, with short-term gains typically taxed at higher rates than long-term gains.

How much tax will I pay on crypto?

Your cryptocurrency tax liability depends on your asset holding duration and total income. Tax rates can range from 0-37%, with long-term capital gains typically taxed at lower rates than short-term gains and crypto received as income.

How do I avoid paying taxes on crypto?

While complete avoidance of cryptocurrency taxes is not feasible for most taxpayers, there are legal strategies to reduce tax obligations. These include tax loss harvesting, using specialized cryptocurrency tax software, making donations, prioritizing long-term capital gains, and strategically executing sales during years of reduced income. Additionally, exploring crypto tax-friendly regions may be a viable long-term strategy for serious investors.

For personalized advice and best results, we recommend consulting a crypto tax professional and leveraging dedicated crypto tax software like ours at TokenTax for accurate reporting and compliance.